Apple: Bulls and Even Some Bears Increasingly Look to FYQ1 Beat

By Tiernan Ray

Apple (AAPL) will report fiscal Q4 results on Monday, after the bell, and while expectations are upbeat for for in-line or better results, the focus of analysts today is on whether Apple will offer upside in its outlook for this quarter.

The announcement comes on the heels of this week’s iPad media event in San Francisco, and also follows the company’s announcement a month ago that it sold 9 million units of the iPhone 5S and 5C in the devices’ first weekend on sale.

Analysts are modeling $36.84 billion in revenue and $7.92 per share in net profit for the quarter ended last month. For this quarter, the consensus stands at $55.45 billion and $13.92. The company said last month, right after announcing iPad numbers, that it expects results last quarter to be at the high end of its forecast.

Scott Thompson with FBR Capital Markets is modeling $37 billion last quarter, and after raising his gross margin expectation to 38% from a prior 36.9%, he thinks Apple can beat on the bottom line with $8.03, versus an earlier expectation for $7.78. Thompson moderated his estimates for Q1, projecting $54.29 billion and $13.49 per shhare versus a prior $55.6 billion and $13.67. That assumes gross margin of 38.%, up from his prior 38.1% estimate.

Thompson trimmed fiscal ’14 revenue estimate to $180 billion from $181 billion, but raised his gross margin estimate to 38.4% from 37.8%, and raised his EPS estimate to $44.06 from $43.24.

“While we view shares as having closed the valuation gap observed throughout most of the year, we also view AAPL, with net-of-debt cash accounting for one-third of the company’s market cap, reasonable consensus estimates, and several catalysts supporting shares, as one of the more defensive names within our coverage universe.”

Cowen & Co.‘s Timothy Arcuri reiterates an Outperform rating, and a $550 price target, arguing that “iPhone 5S/5C optimization and ongoing ramp improvement should fuel strong EPS guide” this quarter. He’s modeling a beat last quarter on revenue, at $37.22 billion, but a possible miss on the bottom line at $7.91. For Q1, Arcuri sees a sizeable beat on top line, at $56.89 billion, and on bottom, at $14.73.

Arcuri thinks the new iPhones may have room to run beyond the current quarter:

Media reports of 5C production cuts are misleading, in our view, given what we think has been strengthening overall 5S/5C production with 5S vectors continuing to strengthen even real time. We continue to see potential for a multi-qtr upgrade cycle and would note our recent survey work indicates >70% US iPhone base has yet to upgrade to 4G LTE, while the new iPad refresh is the first real hardware refresh since inception on an upgradable installed base >100MM. New higher iPad Mini price should help margins in addition to 5S/5C unit pool carrying margins that we think are, in aggregate at least several hundred bps better than the former 5 unit pool.

Piper Jaffray‘s Gene Munster reiterates an Overweight rating, and a $640 price target, after talking with 20 buy-side folks and coming up with what he thinks will be the numbers to beat for last quarter: 31 million iPhones, 14.5 million iPads, 4.6 million Macs, and 37% gross margin.

Munster writes that the December quarter may see a 50-basis-point rise in gross margin from September’s level, with the company projecting 37% to 38%, which would be the first quarter-to-quarter rise in gross margin in six quarters.

Munster thinks the forecast for the quarter will be in line with expectations, perhaps in a range of $54 billion to $58 billion, but a lot depends on “whether iPhone 5S supply improves.”

“We believe any supply issues in the Dec-13 quarter would likely push demand into the Mar-14 quarter.”

Pacific Crest’s Andy Hargreaves, reiterating a Sector Perform rating, and a $460 to $560 “fair value range,” projects Apple delivering slightly less than expected, at $36.2 billion and $7.83. For Q1, he’s modeling a beat, at $56.92 billion and $14.44 per share, helped by a “strong mix of iPhones,” which he thinks will boost margins and could contribute to “the first quarter of EPS growth in over a year.”

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There are 12 comments

OCTOBER 25, 2013 12:33 P.M.

Rottan Frewt wrote:

It's always Apple selling this and Apple selling this and Apple stores are packed. But when push comes to shove at earnings time, Apple always misses expectations and the stock drops like an anvil. Google blew away earnings, Amazon blew away earnings and even Microsoft beat earnings. All of those stocks got healthy share price boosts. Just wait until Apple misses on earnings and it will be the only tech stock whose share price will fall. Tim Cook is a lousy CEO when it comes to pleasing shareholders. Apple continues to sit on a huge pile of cash and do nothing with it. If Apple wants to just make quality hardware that's all well and good. Let them charge more for it. However, use that cash to get into some non-hardware business where the revenue will come in steadily without all those supply chain mishaps and Android competition.

Apple's money management is a failure on so many levels. A near profitless company like Amazon can return so much money to shareholders and yet Apple can't. It's so pathetic. Google's and Amazon's share prices are climbing so rapidly while Apple just stagnates. Apple's hardware business has hit a brick wall thanks to Google's Android. I honestly don't understand why Apple is so insistent on stashing its money while other companies spend freely with far less money to burn. Apple could be growing its reserve cash pile overseas with some investments instead of just holding it in some low-interest bank account. What is Apple so scared of where it can't find anything to use it cash reserve for except buybacks which is probably the least effective way of giving value back to shareholders? Give higher dividends or acquire some worthwhile companies to grow shareholder value.

I shudder to think how badly Apple is going to miss Wall Street's expectations this time around. I get sick of hearing Apple's boasting of sales numbers when it always comes far out less than they actually should be selling to meet expectations.

OCTOBER 25, 2013 12:51 P.M.

Real world wrote:

I think the comment below is a bit misguided . . . . . .
Apple usually EXCEEDS expectations
it is still the most successful corporation in the history of the world

OCTOBER 25, 2013 12:56 P.M.

Rottan Frewt is an idiot wrote:

My name says it all.

OCTOBER 25, 2013 12:57 P.M.

Jason Vickers wrote:

"Apple always misses expectations and the stock drops like an anvil" - This is untrue. The last 6 earnings calls the stock has risen 3 times with the momentum on the side of a continuing rise from lowered Q/Q comparisons.

I fail to see how a company that can accumulate 150B US Dollars in the bank is "money management failure"

The biggest advantage ANY tech company has these days is time to market, and while Apple's product releases may have lagged behind in the latest and greatest innovations for the past few qtrs, having that bank roll to call apon and capture the next big thing is a good use of money management.

There are many areas for expansion that have yet hit the market, and I'm sure AAPL will get it's fair share.

OCTOBER 25, 2013 1:04 P.M.

Apple CFO indicated earnings to be on the higher end wrote:

After the first weekend of sales, the CFO filed with the SEC that their earnings will be on the higher end of their range, yet Andy Hargreaves who is consistently wrong is indicating Apple will deliver slightly less than expected. I guess when you have shorted Apple stock and are loosing badly and the Apple CFO is saying the earnings are going to be on the higher end in an SEC filing, you gotta make up some stories and say earnings are going to be less than expected.

OCTOBER 25, 2013 1:16 P.M.

Steve wrote:

There will always be people complaining Apple this and Apple that.

"APPLE stock is not compelling enough"
"APPLE not innovated enough"
"Cook is not Steve Jobs, no vision"
"iPhone not cheap enough to grow market share in third world countries"
"iPhone C is not selling enough"
"iPhone S Gold not able to satisfy consumer demand"
"iPadAir does not come with MAYDAY button"
"No iWatch smart watch"
"No iGlasses, like Google glasses"
"No foldable, flexible or curve screen"
"Only makes ~$10 Billions every quarter, but profit % not growing"
"Free softwares is not really free, but priced into the device"
"Apple hates Microsoft, does not hate Google anymore"
"Apple hates human rights, abusive to factory workers in China"

Just wait for APPLE earning. Those same people will come up with something else to complain.

OCTOBER 25, 2013 2:45 P.M.

tao jones wrote:

rottan Frewt is a reminder why half the people you meet are below average. first of all android is an operating system and not a device there is no one company making money on using android excel google which gets all the user tracking data from the android users habits and shucks them with targeted offers . As far as Apples cash pile the company keeps it against the day when somebody ttys a hostile takeover of the company . Jobs learned a lesson when he took over the mess left by amelio and had to beg gates for help. Apple will not risk that indignity again . I am quite happy to be getting regular dividends from my apple stock. the share price has been the biggest looser because idiots like this one do not understand that apple does not need to flood an entire market with units to eek out some cash on volume and so called market share. apples share of the profit from the whole industry is amazing and even if its percentage were to drop the amounts of money from the larger market will still be astounding. As to apples so called supply chain mishaps the market punished apple 3 quarters ago for only making and selling one device every 10 seconds.
even a donut shop takes 3 minutes to make a donut . At one point or another Google and Amazon will reflect their true value and it is no fault of apples that herd behavior and speculation is driving those companies shares to prices where even the ceos are starting to say hey get a grip investors. I hope rotten is happy with the gold he bought at 1700 . Apple provides actual value to its customers not potential sales thru advert clicks. when some child points at google and tells us the company is naked rotten will reap the frewt of his folly .

OCTOBER 25, 2013 3:25 P.M.

discombobulated wrote:

Mac sales slipped the last three quarters and margins are being squeezed.

Does anyone remember when analysts were skeptics? Today, they are cheerleaders.

OCTOBER 25, 2013 8:30 P.M.

Anonymous wrote:

$640.

Dooyt Dooyt Dyoot looking out my back door.

$640.

OCTOBER 25, 2013 8:33 P.M.

Anonymous wrote:

How come the previous article here that's titled: This Morning... has no area for comments?

OCTOBER 27, 2013 1:14 A.M.

Amazed wrote:

Q4 results in October? Apple has invented a time machine!

OCTOBER 28, 2013 9:16 A.M.

Dave B. wrote:

I think it was a brilliant move for Apple to give away their OS upgrades and iWork software. Over time this will certainly help them gain market share and hurt Microsoft. I will however be looking at their earnings tomorrow to see if they felt this was a necessary move to prop up their Mac and regular iPad business. With PC sales declining, most of the tablet market growth being in smaller tablets, and Microsoft and their OEM ecosystem improving their productivity tablets and 2-in-1 devices with Windows 8.1 the question is - was this move required to try to keep up or stem a slide in sales.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.